The 40 years of political turmoil that began in Trinidad in 1970 devastated its oil industry. However, the election of a new government in 2010 and the imposition of a new royalty and tax regime — royalties reduced by up to 50%, taxes reduced by up to 20% — has made all the difference. Especially for Touchstone Exploration (TSXV:TAB) of Calgary, whose decision to enter the Caribbean country six months before the election can only be described as fortuitous.

“Our goal was to find light oil, onshore, where there was large oil in place, and we could apply new capital, engineering, and technology to increase the recovery factor,” Touchstone Chairman/CEO Paul Baay recounts.

“We looked at a number of different places to implement this same strategy, and I distinctly remember the first two that we looked at were Libya and Egypt. I’m glad we avoided those back in 2010. I guess you could say we dodged a bullet, both figuratively and literally.”

From a risk standpoint, Trinidad’s stability derives from its history as a British colony and its adoption of the British legal and land titles system. Geologically located up-dip in the Venezuelan Basin, oil and gas has been a major part of the Trinidad economy since 1908, with booms in the 1930s, 1940s and 1950s. Today, the country still has plenty of expertise and infrastructure to draw upon.

“There is indeed a surplus of equipment in Trinidad; however it’s older equipment,” Baay says. “So when you start to bring in elements of newer available technology, there are some backdating modifications required. So far, we’re having good success in doing that. It’s been a long time since somebody has come in here to really spend what’s necessary to implement these improvements.”

Instead of utilizing only the latest equipment, as in Canada and the United States over the last 15 years, Touchstone is supplementing its drill program by strategically updating previous wells through gradual low-risk recompletions. On paper, this strategy resembles a low-risk Alberta or Saskatchewan production growth plan, compared to those seen in other international ventures.

“When people think of an international operation, they typically think of very expensive wells where you’re typically going for a home run (ie, big new reserves). Our model is very different. A more proper analogy would be that our strategy involves plenty of base hits,” Baay explains. “We’re going into the older fields, drilling new wells, recompleting them, and by doing this we’re not going to be getting a 5,000 barrel-a-day well. What we’re targeting are 70 to 100 barrel-a-day wells and trying to get a couple hundred of those.”

Touchstone’s 2012 drilling program includes 15 new wells, with five already drilled. In addition, the company typically aims to perform at least three recompletions a month on older wells.

“The recompletion program has been very economic for us, in that we probably spend only $50,000 per well, and we’re getting 10 to 20 barrels a day back out of them,” Baay says. “So then it becomes a little more like a manufacturing operation, rather than your typical traditional international exploration program.”

With much of the infrastructure in place, cashflow turnaround is swift. State-owned PetroTrin operates an onshore refinery capable of handling 200,000 barrels a day and keeps the process simple for producers by buying the crude oil straight from the field, obviating the need for Touchstone to negotiate transportation or third-party sales contracts.

“On new wells we’re paying off in just under a year based on $90 West Texas Index, WTI, price,” Baay reports. “And the recompletions have probably been the most attractive for us, because we’re paying them off in under nine months or even half a year.”

Touchstone’s approach is modest, but the results are real. Year over year, production has grown from an average 550 barrels a day last year, to an expected 1,200 to 1,300 barrels a day this year. As a result, Touchstone’s inventory and cashflow grow steadily.

“It’s a little bit boring compared to other international stories, because of our slow and steady strategy,” Baay admits. “But it’s pretty low risk due to our drilling and recompletion activities, which is also different for an international story.”

Through four key acquisitions since June 2011, Touchstone has consolidated a large land base. The company presently has access to 16 different blocks in Trinidad. And it has information from 1,000 previous well bores, with a four-to-five-year drilling program in the works. At press time, Touchstone had 108.9 million shares trading at $0.34 for a $37 million market cap.

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